Shares of U.S. health insurers rose in premarket trading on Tuesday after the government announced plans for a larger-than-expected increase in 2027 payment rates for Medicare Advantage plans.
Major insurers responded positively, with UnitedHealth Group surging about 6.9%, while CVS Health, Elevance Health, Centene Corporation, and Molina Healthcare gained between 3.6% and 6%.
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The Centers for Medicare & Medicaid Services said late Monday that it plans to increase payments to private insurers offering Medicare Advantage plans to older adults by an average of 2.48% in 2027 significantly higher than the 0.09% rise it proposed in January.
Analysts at RBC Capital Markets noted that the increase is well above their expectations of around 1% to 1.5%.
“We view the revision more as righting an actuarial wrong, not CMS backing off its disciplinarian attitude towards MA,” Jefferies analysts said in a note.
A Medicare official said during a call with reporters that insurers would also receive an additional 2.5% boost from changes to risk assessment payments tied to patients’ health status, bringing the total increase to roughly 5%.
The Centers for Medicare & Medicaid Services said the increase would lead to more than $13 billion in additional payments to Medicare Advantage plans in 2027.
The government payment rate plays a key role in determining how much insurers charge in monthly premiums, the types of benefits they provide, and ultimately how much profit they can earn. It is also used by insurers to prepare their bids for Medicare Advantage contracts they plan to offer in 2027.
